House Republican leaders are working to win the votes needed to pass a revised version of their health care reform bill, the American Health Care Act (AHCA), that aims to lower health insurance premiums for some individuals by letting states obtain waivers to opt out of the Affordable Care Act's (ACA) essential health benefits, community rating, and age banding requirements.
The latest revisions reflect negotiations between leaders of the conservative House Freedom Caucus and the moderate "Tuesday Group" since the March collapse of Republicans' first attempt to pass the bill, which Speaker Paul Ryan, R-WI, pulled from floor consideration because it lacked support. Other changes to the AHCA since its introduction include the addition of a risk-sharing program to help insurers cover high-claims costs.
These latest revisions brought an official endorsement from the Freedom Caucus, and GOP leaders had hoped to rush the bill to a floor vote this week before the 100th day of President Donald Trump’s presidency on Saturday. But many moderates, leery of what they see as a lessening of consumer protections by the new changes, are not rushing to sign on to the bill, and some have announced opposition. Leaders are trying to secure enough support to pass the bill the first week of May, but the outlook is uncertain.
It has been a month since the American Health Care Act was pulled because House Republicans lacked the votes to advance it to the Senate. Here’s a run-down of all that has happened since then, including our perspective on what it means to employers.
Individual Options in the Public Exchange
Over the past month, after Humana announced that it will no longer offer plans on the public exchange and Anthem announced that it is nervous, we have been seeing articles about parts of the country where Obamacare options could go from one to zero. Insurance companies are trying to decide whether to participate in the exchange market in 2018 as they wait for Washington to provide some much-needed clarity and stability.
Last week, health insurers met with Seema Verma, the new Medicare administrator. Their biggest concern is the future of cost-sharing reductions (CSRs) paid by the administration that now go to the companies covering about seven million individuals to help lower deductibles and co-payments. While the Obama administration paid the subsidies, House Republicans sued, arguing that payments made by the executive branch and not appropriated by Congress were unconstitutional. A federal district court judge agreed but allowed the subsidies to continue while the case is being appealed, and the next court date is May 22. Interestingly, Kaiser Family Foundation released an analysis that showed eliminating the CSRs would actually result in a net increase of $2.8 Billion to the Federal government in 2018 for higher premium subsidy payments. In addition to the CSRs, insurers also worry about enforcement of the individual mandate penalty. Without it, healthier people might consider going without insurance, which drives up costs for the insured.
What employers need to know: The funding for the CSRs is critical for the insurance companies because it will saddle them large immediate costs and affect their pricing of future policies. Without the subsidies, rates are estimated to increase an additional 20% on top of required increases for 2018. The health of the individual market is important to employers as outside options for COBRA coverage and pre-65 retiree medical coverage. In addition, shortfalls in the individual market will result in cost-shifting to other markets, most likely employers since they cover the largest portion of the US population.
Attempts to Revive the AHCA Continue
Following the failed attempt to pass the AHCA in the House, the White House urged continued efforts aimed at bridging differences between GOP moderates and conservative Freedom Caucus members who believe the AHCA did not do enough to drive down insurance premiums. Just before Congress left town on Friday, April 7, for its two-week Spring recess, House Republicans agree to add language to the bill that would establish a federal risk-sharing program providing $15 billion to states over nine years. The change did not convince the Freedom Caucus members, who had earlier met with Vice President Mike Pence to discuss their support for getting rid of three ACA regulations -- essential health benefits, which mandate what services insurers must cover; community rating, which says insurers can't charge sick people more for insurance; and guaranteed issue, which says insurers must cover people with pre-existing conditions.
Talks between the White House, House GOP lawmakers produced a compromise proposal on April 26 that would let States to opt out of essential health benefit regulations and loosen the rules on when insurance companies can charge higher premiums. In exchange, states would have to set up a high-risk pool where older, sicker people could buy coverage, likely at much higher prices. It remains unclear, however, whether the proposed changes will attract enough votes to move the bill out of the House.
What employers need to know: There is still interest in repeal/replace, but the reality that it will take time seems to have sunk in – especially given that even if the House is able to pass a bill, there will be more issues to navigate in the Senate.
Trump Has Options While Waiting for Lawmakers
There was an interesting piece in the New York Times outlining what the Trump administration could do to the ACA in the absence of legislative changes. It could weaken enforcement of the individual mandate; not fund CSRs and make premium subsidies less generous; allow states to impose work requirements under Medicaid expansion; and redefine essential health benefits (although this would require a lengthy re-write of current regulations). What the administration can’t change is the employer mandate or taxes created under the ACA. Nor can it increase in premiums for older Americans. Most recently, HHS issued a stabilization rule aimed at addressing some of the insurance companies concerns in the individual insurance market. It addresses premium payment requirements, shortening the open enrollment period, pre-approval verification for special enrollment requests, and flexibility on plan designs within the metal categories (essentially, allowing higher cost sharing in order to lower the premium costs).
What employers need to know: The longer it takes for lawmakers to reach consensus, the more important these types of actions will be. Employers should be aware of any actions that potentially could result in cost shifting -- which is everything on the list.
Here’s the bottom line. More than 177 million Americans get their health coverage through an employer. American businesses are a critical partner for success as the Trump Administration and lawmakers navigate the future of health insurance. We strongly support actions that seek to slow healthcare cost growth and limit cost-shifting to private payors.
In our recent policy paper, we recommend the creation of a “President’s Healthcare Leadership Council” to drive transformation and boost transparency in healthcare. In setting health policy for the coming years, the federal government has an important opportunity to support the collaboration needed to drive value throughout the entire health system.
After their failed attempt to pass ACA repeal and replace legislation, President Trump and House Speaker Ryan indicated that they were “moving on” to other legislative priorities. On Tuesday, we learned that Republicans have restarted their conversations about healthcare. On Wednesday, Bloomberg reported the GOP was discussing a new vote as early as next week.
At Mercer, we believe that the current healthcare system is unsustainable, but we urge that changes be made without undue haste and with careful consideration of the many complex factors at play in our system. We are actively advocating for new health savings account rules and the repeal of the Cadillac tax and, as I said in my blog post earlier this week, we stand ready to support lawmakers in shaping policies that will address the underlying causes of healthcare cost growth.
Our conversations with employers across the country echo these priorities. For instance, the morning of the day the bill was pulled, I gave a speech at the North Carolina Business Group on Health annual conference. I asked the group of benefits professionals if they could ask one wish of the President and Congress, what would it be? Responses included:
- Healthcare coverage for all
- Consideration of the consequences of cutting federal funding for Medicaid and public health programs
- Consideration of the consequences of cost-shifting to older pre-Medicare-eligible Americans
- Help addressing unnecessary/inappropriate care, ER visits, and opiate use
- Help with escalating prescription drug costs
- Relief on the ACA reporting requirements
What would your "one wish" be?
A couple of weeks ago (feels like ages) we launched a brief survey to find out where employers stood on specific provisions in the House GOP repeal-and replace-bill, the American Health Care Act (AHCA). We closed the survey on Thursday with more than 900 responses. As I was reviewing the results on Friday, the bill was apparently dying -- but now House leaders and President Trump are signaling that it may be revived. Either way, the health reform debate is far from over, and many of the provisions introduced in the AHCA will likely remain part of the discussion.
The survey asked health benefit professionals how key provisions would affect their organization’s health benefit program, employees, and business success -- as opposed to how they might affect the individual market or people without access to employer-sponsored health insurance. They could also respond that the provision would not affect their organization one way or the other.
HSA changes, repeal of employer mandate seen as positive
We didn’t ask for an overall opinion of the bill, but employers’ reactions to individual provisions added up to a less-than-ringing endorsement. To start with what they liked: 66% said that liberalizing HSA rules -- such as allowing higher contributions -- would have a positive effect on their organizations. That’s in the ballpark of the percentage of large employers nationally that offer HSA-eligible plans (53% in 2016). If you don’t offer an HSA-eligible plan and don’t intend to, or if you do offer one but none of your employees are likely to hit the maximum account contribution, you might not believe this provision would have much of an impact, like 29% of our respondents.
That was the only provision seen as a positive by more than half of the respondents. Next closest is repealing the employer mandate. Just over a third -- 35% -- said it would have a positive effect on their organizations. Most said it would have no impact. Why? Wouldn’t employers like the option to drop coverage for employees working less than 40 hours per week, or to stop worrying about meeting the affordability and minimum plan value requirements? The fact is that most employers already met the ACA requirements before the law was signed. And if they did make changes to extend coverage to more employees or make it more generous, they may not be able to picture clawing that back. Our earlier surveys found that the employer mandate had very little effect on employer plans because employers were already voluntarily providing comprehensive and affordable coverage, so repealing the employer mandate would likewise have little effect.
Repealing the individual mandate was judged as a positive by just 27% of employers; 18% view it as a negative and most believe it would have little effect on their organizations.
Other provisions expected to do more harm than good
For the rest of the provisions we asked about, the view was much more negative than positive. Nearly two-thirds of respondents (65%) believe that cutting funding for public health initiatives would have a negative effect on their organizations. Such a change would scale back or eliminate programs designed to improve community health (for example, vaccinations), and employers are well aware of the extent to which workforce health is tied to community health. Federal programs to monitor and reduce hospital-acquired infections would also be cut, with obvious negative consequences for health care payers.
Nearly as many respondents (64%) say that the proposed Medicaid cutbacks -- ending Medicaid expansion and moving to block grants -- would have a negative effect on their organizations. This suggests that employers are aware and concerned about the impact that an increase in the number of people without insurance could have on the cost of health care. It may be hard to prove, but it stands to reason that providers wind up shifting the expense of treating those who can’t pay to those who can.
Last but certainly not least, 64% of respondents told us that retaining the excise tax, as the AHCA did, would have negative consequences for their organizations; our health reform leader Tracy Watts described the excise tax as a dark shadow hanging over strategic planning. We also asked about capping the exclusion on the individual tax, which was in an earlier draft of the bill and may well resurface. Not quite as many saw this as negative, but it was close, at 57%. Those who believe that the excise tax or the cap will not affect their organizations may think they will never hit the thresholds. We wish that were true, but given that health cost generally rises faster than the CPI, the index used to raise the tax thresholds, more likely it will only be a matter of time.
Based on their 2016 plan costs, we project that 23% of large employers will be subject to the excise tax in 2020 when it is slated to go into effect, unless they make changes to the plan. That percentage almost doubles when we project it out to 2025.
Cadillac tax remains a focus
For many employers, avoiding the excise tax won’t be a simple matter of downgrading a “Cadillac” plan, because their plans weren’t Cadillac to begin with! As we’ve shown, many factors that drive plan cost are outside an employer’s control -- in particular, location and employee demographics. That’s why Mercer will continue to advocate against the excise tax and a cap on the individual health benefit tax exclusion -- provisions that will make it harder for employers to continue providing affordable, comprehensive coverage to the more than 177 million Americans that now rely on it.
Last week Republican leaders abruptly canceled a House vote on the proposed American Health Care Act (AHCA) because it was clear that it wouldn’t pass. At a March 24 press conference, Speaker Paul Ryan, R-WI, said that the party will now "move on" to tax reform and other policy priorities.
While “moving on” might be an option for Congress, it isn’t an option for employers who collectively provide health coverage to 177 million Americans and spend over $660 billion annually on health benefits -- more than federal spending on Medicare. Given that healthcare spending rises faster than inflation, it has been an ongoing challenge for employers to provide their workers with comprehensive, affordable coverage.
But there is reason to be optimistic. In recent years, we’ve seen overall health benefit cost growth slow, and some employers have made remarkable progress in bending the trend with breakthrough strategies. We believe there are steps that employers of any size can take to make a difference in their own programs -- and that ultimately these actions will drive change in the larger US healthcare system. We are working with employers to lead meaningful change through a collective focus on these four vital aspects:
- Pay for Value: Align reimbursement with value, not volume.
- Drive to Quality: Deliver the right care at the right time, in the right setting, error free.
- Personalize the Experience: Leverage data and technology to help employees make better healthcare decisions.
- Embrace Disruption: Leverage constant changes in the system -- with internal stakeholders and external partners -- to be future-ready.
Of course, true transformation will require change and cooperation from other players in the healthcare system -- including the federal government. That is why we will continue our efforts on the Hill, pushing for policies that address the underlying causes of healthcare cost growth, new health savings account rules, and the repeal of the Cadillac tax.
One possible fix for the public exchanges? Repeal the ACA provision expanding dependent coverage. Allowing young adults up to age 26 to be covered under their parents’ plans has been one of the law’s most popular provisions, especially since it went into effect at a time when many young people were struggling to find full-time work in the wake of the recession. But it also took these same people out of the potential pool of enrollees when the exchanges opened in 2013. While many factors have contributed to premium spikes in exchange coverage in some states, one quoted across the board has been that fewer young people than expected signed up for coverage. Had young adults not been able get coverage through their parents’ plans, it’s possible a portion of them would have signed up for exchange coverage. And having these younger, and generally healthier (i.e., lower risk) individuals in the pool might have helped to keep the premiums down.
Leading up to Thursday’s vote in the House on the AHCA, the GOP’s repeal and replace bill, lowering the dependent eligibility age to 23 was on the list of possible amendments but then withdrawn. As acknowledged in thisPolitico article, repealing the provision would be political suicide for anyone that proposes it; people don’t react well to losing a benefit they’ve gotten used to having. Yet the upsides for removing this provision are, in principle, aligned with GOP repeal and replace goals, namely, removing additional costs imposed through the ACA and helping to stabilize the individual market.
One approach might be to phase out this provision, or grandfather individuals born before a certain date, so that families have time to prepare and plan for alternative coverage for their older children. Of course, this only works if there’s an affordable health care option for these young adults on the exchanges. If the current subsidies are reduced to the levels proposed under the AHCA (an individual under 30 would only receive $2,000 towards health coverage per year regardless of income or location beginning in 2020), then leaving these individuals to the mercy of the individual market may not be wise; it could create a “black hole” of coverage from age 26 perhaps until the age when people are starting their families and see an absolute need for care. So while employers as well as the individual market could benefit from a rollback of this provision, adequate subsidies on the exchanges would need to be in place to help these individuals purchase and maintain continuous coverage.
Before the ACA, many self-employed individuals found it challenging to find a health plan on the individual market that met their needs, let alone to pay for it. Post ACA, the ability to obtain affordable coverage not tied to an employer has givenentrepreneurs in the growing ‘gig’ economy the flexibility to pursue their goals without having to worry about maintaining health coverage. These days may be coming to an end if the new GOP health care bill passes, however. Under theAmerican Health Care Act or AHCA, subsidies are dependent on age, as opposed to income (like under the ACA), and are not adjusted for geography, even though health costs vary widely depending on where you live. This could mean big changes in the amount of assistance an individual would receive under the AHCA compared to under the ACA. As cited in the article, a 40 year-old in San Francisco making $30,000 a year would receive $800 less a year under the new plan, and a 40 year-old living in Santa Cruz County, CA would see a $2,490 less per year -- potentially putting coverage out of reach.
A study published by the McKinsey Global Institute estimates that U.S. has between 54 million and 68 million ‘independent workers’, with some working independently full-time and others using independent/freelance work to supplement their primary income. With the proposed changes under the AHCA, some individuals may try to seek traditional employment for the purpose of healthcare coverage, or they may just choose to go without coverage completely. While critics of ACA subsidies have said they discourage people from seeking employment or advancing their careers since an increase in income would result in a decrease in subsidies, this new plan could have the same discouraging impact on the next generation of entrepreneurs.
Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.
That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.
Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics.
This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.
When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.
It was my privilege to meet last week with Senators Rob Portman (R-OH) and Tom Carper (D-DE), both members of the Finance Committee; Senator John Cornyn (R-TX), Majority Whip and Member of the Finance Committee; and Senator Orrin Hatch (R-UT), Chairman of the Finance Committee. I urged them, first and foremost, to preserve the health benefit tax exclusion, and secondly, to liberalize HSA rules. I also discussed the potential impact of proposed cuts to the Medicaid program, and our concern that a surge in uncompensated care would cause providers to shift cost to private group plans – making it harder for employers to continue to provide adequate coverage to their workers.
Our work is far from done. I look forward to returning to Washington as the legislative debate continues – to advance the goal of preserving and enhancing the employer-sponsored healthcare system that is a stable source of good health coverage for approximately half of all Americans.
Join me on LinkedIn to continue the conversation. How will changes in healthcare policy have an impact on your organizations and people?
In an effort to garner more support for their ACA repeal legislation, House Republican leaders revealed changes to the legislation on Monday night pending the Rules Committee vote before going to the House for their vote. Of greatest interest to employer plan sponsors is the delay in the Cadillac Tax from 2025 to 2026. The bill’s amendment repeals some of the other ACA taxes retroactively to the beginning of 2017 instead of 2018 as originally proposed. Other changes include additional funding to increase tax credits for older Americans and some Medicaid revisions.
In light of the changes, the House Freedom Caucus has indicated they won’t oppose the legislation, but they may still have enough “no” votes to kill the bill. President Trump went to the Hill on Tuesday to help the House Leaders secure support for the bill. In the meantime, the CBO is analyzing the changes and is expected to issue a new CBO score before Thursday’s House vote. The Brookings Institution doesn’t expect a meaningful improvement in the score.
The Congressional Budget Office (CBO) estimates that House Republicans' legislation repeal and replace much of the Affordable Care Act (ACA) will reduce federal deficits by $337 billion and increase the number of uninsured by 24 million -- for a total of 52 million uninsured people -- by 2026.
While most of the projected coverage losses are in the individual market and under Medicaid, CBO projects that fewer people -- 2 million in 2020 and 7 million in 2026 – would enroll in employer coverage under the bill as a result of eliminating individual and employer mandate penalties while making tax credits available to a wider range of people (e.g., people with higher incomes). The GOP bill’s tax credits would only be available if an individual does not have an offer of health coverage from their employer or elsewhere. While these changes might cause some employers to offer coverage to fewer employees, CBO said employers may adapt slowly to the legislation given the uncertainties.
The projected coverage losses are heightening concerns by moderate Republicans - particularly in the Senate - about the House bill, while conservatives are demanding changes that could further increase the number of uninsured. Congressional GOP leaders and President Trump are discussing potential revisions to the bill ahead of a House vote that could happen within weeks, and the CBO is expected to issue new projections as the legislation changes.
On Monday the CBO released its much-anticipated score of the American Health Care Act, the Republican legislation to repeal and replace the ACA. The CBO projection shows a loss in healthcare coverage for 24 million Americans over the next decade, accompanied by a reduction in the federal deficit of $337 billion. The state Medicaid programs are taking the biggest hit, with a decrease in funding of $880 billion during the same time period. In the short term, the CBO projects that health insurance premiums in the individual market will increase 15-20% and 14 million fewer Americans will have coverage as soon as next year.
None of this bodes well for employer-sponsored medical plans. At the time the CBO score was released, I was speaking at the Society for Human Resource Management's 2017 Employment Law & Legislative Conference. We asked the employers in the audience to respond to a polling question – “If healthcare reform were to occur this year, what are your concerns?” Overwhelmingly, the top concern was that a rise in the number of uninsured will lead to cost shifting by providers to employer-sponsored plans.
That was the theme of a recent article I co-authored with Terry Stone from Oliver Wyman. We argued that cost-shifting fails to address the underlying causes of cost growth – it may even worsen it. Moreover, increasing the cost burden on employers will simply make it harder for them to provide affordable coverage to the many millions of health consumers – 177 million, to be precise – who receive benefits through work. You can read more about our recommendations from health reform in this report.
This article discusses the tax conundrum Republicans are facing as they try to repeal portions of the ACA. In short, legislation passed through reconciliation cannot increase the deficit beyond the budget window. With the proposed repeal of most of the ACA taxes, Republicans are using the Cadillac Tax to “smooth over the budget math.” The Cadillac Tax is disliked on both sides of the aisle so there’s still hope for a full repeal before the 2025 effective date. In the meantime, employer groups like the Alliance to Fight the 40, American Benefits Council, and ERIC continue to oppose the tax.